SCC arbitration award set aside as partially invalid by Swedish court

It takes a lot for an arbitration award to be declared fully or partially invalid by the ordinary courts. On 4 November, however, Svea Hovrätt (Svea Court of Appeal) partially set aside an SCC arbitration award because the court considered that the arbitration award was based on matters that had not been stated directly, and for which there had also been no proceedings or evidence.

In the underlying dispute, a Russian steel producer had terminated its contract with a Chinese contractor to design and build a factory for the production of railway rails. The contractor brought the case before the arbitration court, stating that the rescission was unjustified and claiming USD 45 million in settlement. The steel manufacturer filed a counterclaim. With dissenting votes, the arbitration court concluded that the steel manufacturer’s rescission of the agreement was justified, but found that it was still obliged to pay USD 17 million to the Chinese contractor, after assessing a number of claims and counterclaims between the parties.

The steel manufacturer filed an annulment action, claiming that the arbitration award was fully or partly invalid.

The basic question before Svea Court of Appeal was whether the arbitration court had gone beyond its mandate, cf. section 34 first paragraph of the Swedish Arbitration Act (which corresponds to section 43 first paragraph c) of the Norwegian Arbitration Act).

In a thorough judgment, Svea Court of Appeal assesses a long series of objections against the arbitration award. A key question was whether the arbitration court had acted within its competence, as it awarded the contractor compensation for specific costs it had accrued, while the contractor had in fact only claimed partial and final payment in accordance with the agreement between the parties. Hence, the arbitration court’s award had other legal consequences than what was invoked by the parties. In addition, neither of the parties had submitted any statements relating to such costs, and had therefore not submitted any pertaining evidence. The arbitration court had also taken into account an industry profit margin based on the arbitration court’s own knowledge – a matter that neither of the parties had addressed during the case. Svea Court of Appeal pointed out that it could not be ruled out that these circumstances could have had an impact on the outcome of the award, and quashed the arbitration court’s decision on these matters.

Relating to a minor matter, Svea Court of Appeal also found that the arbitration court had neglected to consider an objection raised regarding limitation periods and complaints, although this, in principal, had been subject to an overall consideration. This too was regarded as an invalidating factor, as such objections should be assessed on a point-by-point basis. Here too, the Court of Appeal applied section 34 first paragraph – a provision that is not entirely suitable for such a matter.

In summary, the Court of Appeal thus found that the arbitration award was partly based on circumstances that had not been submitted directly, and that had neither been argued nor evidenced. The Court of Appeal also found – admittedly relating to a minor matter – that the arbitration court had overlooked and failed to consider a submission.

In our opinion, the outcome would have been the same in Norway. For arbitrators, there are two golden rules; (i) not to divert from the parties’ submissions and (ii) consider all submissions, regardless of how marginal they may appear to be.

The judgment is not final and enforceable, and in accordance with the Swedish system, Svea Court of Appeal has decided that if appealed, the case must be heard before the Swedish Supreme Court.

The judgment can be found here: Svea HR T 1356-18 Dom 2022-11-04.pdf (lbr.cloud)